Supply can't possibly keep up when real estate is used as an investment.
As an analogy to the dead internet hypothesis I present the dead real estate market hypothesis. Increasingly it's just investors buying and selling properties from each other.
And it's not just a hypothesis. China built enough homes to house its population twice over, yet it's not reflected in the prices. All because everyone and their grandma is investing in real estate.
> China built enough homes to house its population twice over, yet it's not reflected in the prices. All because everyone and their grandma is investing in real estate.
Yes, but this is reflected in China's vacancy rate: 22% by some estimates.
In the US, home vacancy rates are sub-1%.
Not saying people aren't treating homes as investments, but it seems clear we also have a supply issue.
"Real Estate is Investment" should naturally lead to overproduction as investment-only properties get built to satisfy that demand—as we see in China. In the US, we don't see that.
The methodology is to take a hot city like Shanghai or Beijing, and count the number of windows lit up at night on a standard 30 story concrete apartment building. You'll find something like 25% of the units never light up. Now, those are in cities where people want to live, it is much worse in lower tier cities and new districts without services or jobs of lower tier cities.
Property taxes in the US mean you can't speculate so easily on property (you lose ~1% value a year). But they have 99 year leases instead, but everyone thinks the government will let you renew those with minimal fees.
>"Real Estate is Investment" should naturally lead to overproduction as investment-only properties get built to satisfy that demand—as we see in China
China had massive home overproduction because the goddamned totalitarian government told builders to build or else. It was not market forces.
How do you suppose we do that in the US? Especially with this administration?
In the US, builders don't build 100 starter homes because it is more profitable and easier to build a couple McMansions and sell them for crazy prices. THOSE are the homes that get built as "investments". No builder will benefit from producing a large supply of homes, so they don't. The market will not self correct.
Exempt or lighten planning requirements for affordable housing construction. California is going in this direction now.
There are other levers like subsidized financing for developers building homes targeting a certain price range as well as favorable tax treatment of those profits.
A lot of these have would probably have some bipartisan support.
This is what they did in my county. If you build a house as the actual owner (not as an LLC or for rent or sale) and promise not to sell within 1 year there are no design, code, inspection or planning requirements.
Lots of people taken advantage of this here. It is a pressure release valve available to those who can't afford commercial construction or boomers wanting 5x the real value they paid for their home. You can build whatever you can afford without oversight so long as it's only for your family. Most people end up just dragging in budget prefab, but you get the odd earth bag house, shipping container, one man shop carpenter, or just rich people with weird design ideas not allowed elsewhere.
Of course the naysayers have screamed bloody murder about everyone dying in a fire, but this has been law for 2 decades now and none of the apocalyptic prophecies came true.
In China, the local government gets income from leasing new construction land for 99 years, hence the incentive to build.
In the US, the largest amount of government land is held by the Feds and they keep increasing the limits on what the land can be used for year after year. Figure out how to make new home building key to government finances like in China and you will INSTANTLY have the problem solved and even have over supply.
Some say there's little demand but that's horse shit. People snap up much worse desolate land around me to homestead for mucho dinero. Building a house with your own hands on public or unowned desolate lands is the most essential of basic human fulfilments. The youth cannot afford the already built homes nor their construction, so they ought to be able to take matters in their own hands.
As someone who has taken raw land with no utilities to a full house all with my own engineering and construction labor this is only half the story.
To build a starter home I not only had to go to bumfuck Egypt with the most libertarian zoning anywhere near jobs I can find, i also had to rule out the 9/10 of properties with practically irrevocable covenants made by self righteous boomers back in the 80s who already built their pig farm shithole and don't want their precious livestock living near anything but a mansion.
Then I had to find a rare loophole around code compliance and inspections so I could DIY it on weekends and not be subject to weekday inspections. Most codes want stuff like an expensive egress window even though no one living in the house is bigger than a much smaller sliding window, and it goes on infinitum.
Then I had to find a place they hadn't outlawed water yet through a grandfathered well, and finally get buddy enough with the power company to actually get them to run power without royally fucking me with arbitrary requirements. Almost the entire system is designed around grandfathered protectionism while kicking the next generation in the teeth with entirely different and constrained rules voted on by people who who live in places that don't even conform to the requirements imposed on you, which of course gives them a free artificial value boost as well.
A lot of the time code requirements get changed because someone fucked up so hard local government was forced to actually clock in and do work. It's also worth keeping in mind code isn't a ceiling it's the floor. As in it details the most half-assed way to build anything and have it still be legal. All of that said I'd love to have a word with the folks that have decided 3 acre minimum tract sizes locally are a requirement to put in a mobile home. Talk about defeating the purpose...
This is really the issue. There are plenty of places people can live and afford. But everyone wants a particular lifestyle and a certain job in their desired field and maybe proximity to certain people. That sense of entitlement has been rebranded as an affordability crisis but it isn’t that. It’s just entitlement. People should instead live within their means and make sacrifices. Not everyone gets to live in highly desirable places like SF and that’s okay.
You could say that not everyone gets to: have a car, use a computer, have access to quality food, visit a museum, etc and you could argue that that's okay and people should instead live within their means and make sacrifices.
We could also, you know, go the post industrial revolution route and build as much and more of what we need.
Very dense locations such as parts of NYC, Paris, and Tokyo exist and there is a shortage of apartments in these types of spots relative to how many people want to live there. And the areas surrounding, say SF, are mostly suburban. Why not convert these surrounding suburbs to essentially just be more SF - or even more dense and build significant amounts of transit connecting them? Then repeat this for every expensive city in the world, adding a multiple of capacity compared to what we currently have.
This is nonsense. Someone has to haul away the trash, police the streets, put out fires, teach the kids, ya know.... all that stuff you feel entitled to.
The people who actually take care of a community aren't "entitled" for wanting to be part of it.
I think this paradox makes sense to me when combined with the comments above.
The best way to maximize return on real estate is to influence gov to restrict supply
A 6.9% rental vacancy rate implies an average vacancy of ~3.5 weeks per year. Given the high turnover of many rentals, that seems pretty low to me. Turnaround time just to do a make ready for a new tenant tends to be a week at minimum, sometimes longer for proper overhauls (replacing carpet, fixes damage, etc). Sure, not all properties turn over every year, but there's also quite a few properties that have longer vacancies to counteract that.
Agreed, but one thing to note on the Chinese real estate is that a lot of it is apparently "tofu dregs", so a good portion of the real estate is just a building waiting to fall down that you can crumble with your bare hands (lots of YouTube videos on this) and a lot of the supply is also in the middle of nowhere. So the supply is kind of not as much there as you would normally think. To use an analogy, does building a massive housing complex in the middle of the Mojave help American home prices come down?
This is because a ton of them are in the Chinese equivalent of like Boise, Idaho where demand is fairly low. People want to live where the high paying jobs are.
This is the lesson the board game Monopoly was originally intended to teach. The Georgism side of "The Landlord's Game" sometimes feels as relevant as ever, and as obvious as ever why those rules not packed into the game by Hasbro. (They aren't fun and we don't actually want to question what real estate ownership should mean.)
Also made possible by the internet and computers in general, I'd argue. Without the easy availability of prices, sales data, and general number crunching capabilities I don't think this would be happening. Certainly not at the scale we're seeing.
It isn't a hypothesis. It is a well known fact. The more expensive a property is the more time it will be spent vacant because a lot of the very expensive properties are just uses as investments.
> why doesn't someone introduce a legislation to tax vacant second homes at astronomical rates
They tried this in China. People would just get divorced so each partner had their own home. It turns out you can easily find someone in your family to "buy" a house as well.
if someone shows up there 3-4 days a week, how would you know? Even China doesn't have the surveillance setup to tell if someone is living in a house or not (well, they can check to see if it is renovated, and can check to see if the lights turn on at night). It isn't really a rule of law society, so you can't use "the trust but sometimes verify system" they used in Vancouver, and it is definitely not like Switzerland where your neighbors are constantly spying on you. It is a bit counter intuitive, but checking on these things is harder in China than in the west.
We did that long ago - well the rates are not astronomical, but taxes are higher. Some states (probably all but I don't know how to look this up) have a homestead credit, and they date back to the 1800s.
One thing missing - renters cannot homestead their apartment and so the funds that own the apartment have to charge more rent to cover taxes on those apartments.
Do you know who owns most real estate either directly or indirectly? Pension funds. And who wants to shake up their pension? Nobody. It's the most democratized form of asset ownership, literally everybody is going to get angry.
And secondly... Are the second vacation homes really the problem? I'd guess the problem begins around 3rd or 5th, not the second one, which is a fairly common and usually also a good thing to have - for both the owner and the society.
Second vacation homes (plus Airbnb) become a problem for locals of that area. The young ones can't survive there and eventually have to rent (or provided as comp package) from established businesses (B&B/hotel).
> And secondly... Are the second vacation homes really the problem? I'd guess the problem begins around 3rd or 5th, not the second one, which is a fairly common and usually also a good thing to have - for both the owner and the society.
I'm not sure if you mean owning one primary home and two vacation homes, or one primary home and one vacation home when you mention a "second vacation home," but either way this strikes me as out of touch.
4.6% of 65.6% is 3%, meaning at most 3% of Americans own a second home (but this doesn't account for citizens that own 3 or more homes, so the actual percentage is even lower.)
I don't consider that to be common. I also wonder: why is it a good thing for society (or even most homeowners?)
Why? Because politicians aren't generally in the habit of introducing legislation that pisses in the face of the folks that fund their election campaigns. Oligarchy's a bitch.
Do you like all your Capital fleeing to other countries? Because that's how you enrich Canada, Switzerland, Luxembourg, Lichenstein, etc at the USA's expense.
Sometimes I dream with a wishful solution like defining areas of "great living desirability" (basically the cities where seemingly majority of people compete to live in), and charge a yearly tax of N% the market value of each home (with crazy high N, like 20), for owners who have more than M units in that area (with a convervative M, like 3 or even 2).
...You'll see how greedy investors flee fast, and the remaining buyers are honest people who don't want to speculate, but to actually own a home where to actually live.
Commercial RE too. When you say supply is constrained, they don’t mean there’s no RE available, they mean RE isn’t available at a lower price. Most cities in the US right now have a huge commercial RE vacancy rate, yet if you try to lease it, you’re not getting rates that a free market low demand situation is going to get you.
No, it's not. Supply of housing is not in any way limited. Cities are desperately fighting a rearguard action against greedy developers plopping multi-story monstrosities in former SFH areas. All in the name of "affordable housing".
While the supply of house units per capita is at the record-high levels.
Reality: housing is cheap, abundant, and high quality. Just not near the downtown cores of large cities.
